STMicroelectronics Reports Q3 2018 Financial Results

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  • Q3 net revenues $2.52 billion (up 18.1% Y/Y)
  • Q3 operating margin 15.8% (up 270 bps Y/Y), net income $369 million (up 56.7% Y/Y)
  • Business outlook at mid-point: Q4 net revenues up about 5.7% Q/Q, FY18 net revenues up about 16.0% Y/Y; Q4 gross margin about 39.8%

October 24, 2018 – STMicroelectronics, a global semiconductor leader serving customers across the spectrum of electronics applications, reported U.S. GAAP financial results for the third quarter ended September 29, 2018. This press release also contains non-U.S. GAAP measures (see Appendix for additional information).

ST reported third quarter net revenues of $2.52 billion, gross margin of 39.8%, operating margin of 15.8%, and net income of $369 million or $0.41 diluted earnings per share.

Jean-Marc Chery, STMicroelectronics President & CEO, made the following comments:

  • “ST had another quarter of solid performance, with sequential revenue growth of 11.2%, above our 10% midpoint outlook, and operating margin expansion to 15.8%.
  • “Revenue increased 18.1% year-over-year driven by strong growth in Imaging, Power Discrete and Automotive products.
  • “Operating income and net income were up sharply year-over-year and sequentially.
  • “ST’s fourth quarter outlook is for revenues to grow sequentially about 5.7% at the mid­point, translating into year-over-year revenue growth above 8%; gross margin is expected to be about 39.8%.
  • “Based on our fourth quarter guidance, we anticipate 2018 revenues to grow about 16% year-over-year, in line with our expectations shared in May at our Capital Markets Day. This level of revenue growth will also drive strong improvements in operating margin and net earnings.”

Financial Summary (U.S. GAAP)(1)

(US$ in millions except earnings per share) Q3 2018 Q2 2018 Q3 2017 Y/Y Q/Q
Net Revenues $2,522 $2,269 $2,136 18.1% 11.2%
Gross Margin 39.8% 40.2% 39.6% 20 bps (40) bps
Operating Income $398 $289 $281 41.8% 37.8%
Operating Margin 15.8% 12.7% 13.1% 270 bps 310 bps
Net Income $369 $261 $236 56.7% 41.4%
Diluted Earnings Per Share $0.41 $0.29 $0.26 57.7% 41.4%

 

Third Quarter 2018 Summary Review

Effective January 1, 2018, the Subsystems business unit was transferred from Others to Analog, MEMS and Sensors Group (AMS). Prior periods have been restated accordingly.

Net Revenues By Product Group Q3 Q2 Q3    
(in US$ millions) 2018 2018 2017 Y/Y Q/Q
Automotive and Discrete Group (ADG) $901 $870 $775 16.3% 3.6%
Analog, MEMS and Sensors Group (AMS) 899 613 657 36.7 46.6
Microcontrollers and Digital ICs Group (MDG) 719 782 701 2.5 (8.1)
Others 3 4 3 9.4 (2.8)
Total Net Revenues $2,522 $2,269 $2,136 18.1% 11.2%

Net revenues increased 11.2% sequentially, 120 basis points better than the mid-point of the Company’s guidance. On a year-over-year basis, third quarter net revenues increased 18.1% with all product groupsdelivering revenue growth. Year-over-year sales to OEMs and Distribution were up 21.6% and 11.2%, respectively.

Gross profit totaled $1.0 billion, representing a year-over-year increase of 18.6%. Gross margin was 39.8%, 20 basis points lower than the mid-point of the Company’s guidance mainly due to product group mix. Gross margin increased 20 basis points year-over-year, largely driven by a favorable mix shift toward higher value products and improved manufacturing efficiency.

Operating income was $398 million, compared to $281 million in the year-ago quarter, with all product groups growing revenues and with ADG and AMS delivering improved profitability. The Company’soperating margin increased 270 basis points on a year-over-year basis to 15.8% of net revenues, compared to 13.1% in the 2017 third quarter.

By product group, compared with the year-ago quarter: Automotive and Discrete Group (ADG):

  • Revenue grew double-digits, in both Automotive and Power Discrete.
  • Operating profit increased by 36.2% to $116 million, mainly due to higher revenue and associated gross profit. Operating margin increased to 12.8% from 10.9%.

Analog, MEMS and Sensors Group (AMS):

  • Revenue grew triple-digits in Imaging and was supported by growth in both Analog and MEMS.
  • Operating profit increased by 82.4% to $157 million, mainly due to higher revenue and associated gross profit. Operating margin increased to 17.5% from 13.1%.

Microcontrollers and Digital ICs Group (MDG):

  • Revenue grew in Digital ICs while Microcontrollers / Memories were stable.
  • Operating profit decreased by 5.4% to $119 million mainly due to less favorable mix between Microcontrollers and other products. Operating margin decreased to 16.6% from 18.0%.

Net income and diluted earnings per share increased to $369 million and $0.41, respectively, compared to $236 million and $0.26, respectively, in the year-ago quarter.

Cash Flow and Balance Sheet Highlights(1)

        Trailing 12 Months
US$ in millions Q3

2018

Q2

2018

Q3

2017

Q3

2018

Q3

2017

TTM
Change
Net cash from operating activities $373 $360 $433 $1,775 $1,469 18.4%
Free cash flow (non-U.S. GAAP) $114 $(40) $50 $314 $299 (4.6)%

(1) Q3 2017 amounts have been adjusted to reflect the impact of new 2018 accounting guidance, which requires, on comparative periods, the reclassification as operating cash flows of the implied interest paid in the settlement of our convertible bonds.

Capital expenditure payments, net of proceeds from sales, were $242 million in the third quarter and $983 million for the year-to-date period. In the year-ago quarter, capital expenditures were $365 million.

Inventory at the end of the quarter was $1.59 billion, up from $1.56 billion in the prior quarter. Day sales of inventory at quarter-end was 95 days, down from 103 days in the prior quarter.

Free cash flow (non-U.S. GAAP) was $114 million in the third quarter and $170 million in the year-to-date period.

The Company paid cash dividends totaling $54 million in the third quarter and $162 million year-to-date.

ST’s net financial position (non-U.S. GAAP) was $447 million at September 29, 2018 compared to $411 million at June 30, 2018 and reflected total financial resources of $2.17 billion and total financial debt of $1.72 billion.

Business Outlook

The Company’s guidance for the 2018 fourth quarter is:

  • Net revenues are expected to increase about 5.7% sequentially, plus or minus 350 basis points;
  • Gross margin of about 39.8%, plus or minus 200 basis points;
  • This outlook is based on an assumed effective currency exchange rate of approximately $1.18 = €1.00 for the 2018 fourth quarter and includes the impact of existing hedging contracts.
  • The fourth quarter will close on December 31, 2018.

Conference Call and Webcast Information

STMicroelectronics will conduct a conference call with analysts, investors and media to discuss its third quarter 2018 financial results and current business outlook today at 9:30 a.m. Central European Time(CET) / 3:30 a.m. U.S. Eastern Time (ET). A live webcast (listen-only mode) of the conference call will be accessible at ST’s website, http://investors.st.com, and will be available for replay until November 9, 2018.

Use of Supplemental Non-U.S. GAAP Financial Information

This press release contains supplemental non-U.S. GAAP financial information.

Readers are cautioned that these measures are unaudited and not prepared in accordance with U.S. GAAP and should not be considered as a substitute for U.S. GAAP financial measures. In addition, such non-U.S. GAAP financial measures may not be comparable to similarly titled information from other companies.

See the Appendix of this press release for a reconciliation of the Company’s non-U.S. GAAP financial measures to their corresponding U.S. GAAP financial measures. To compensate for these limitations, thesupplemental non-U.S. GAAP financial information should not be read in isolation, but only in conjunction with the Company’s consolidated financial statements prepared in accordance with U.S. GAAP.

Forward-looking Information

Some of the statements contained in this release that are not historical facts are statements of future expectations and other forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934, each as amended) that are based on management’s current views and assumptions, and are conditioned upon and also involve known and unknown risks and uncertainties that could cause actual results, performance, or events to differ materially from those anticipated by such statements, due to, among other factors:

  • Uncertain macro-economic and industry trends, which may impact end-market demand for our products;
  • Customer demand that differs from projections;
  • The ability to design, manufacture and sell innovative products in a rapidly changing technological environment;
  • Changes in economic, social, labor, political, or infrastructure conditions in the locations where we, our customers, or our suppliers operate, including as a result of macro-economic or regional events, military conflicts, social unrest, labor actions, or terrorist activities;
  • Changes in global trade policies, including the adoption and expansion of tariffs and trade barriers, that
    could affect the macro-economic environment and adversely impact the demand for our products;
  • The Brexit vote and the perceptions as to the impact of the withdrawal of the U.K. may adversely affect business activity, political stability and economic conditions in the U.K., the Eurozone, the EU and elsewhere. While we do not have material operations in the U.K. and have not experienced any material impact from Brexit on our underlying business to date, we cannot predict its future implications;
  • Financial difficulties with any of our major distributors or significant curtailment of purchases by key customers;
  • The loading, product mix, and manufacturing performance of our production facilities;
  • The functionalities and performance of our IT systems, which support our critical operational activities including manufacturing, finance and sales, and any breaches of our IT systems or those of our customers or suppliers;
  • Variations in the foreign exchange markets and, more particularly, the U.S. dollar exchange rate as compared to the Euro and the other major currencies we use for our operations;
  • The impact of intellectual property (“IP”) claims by our competitors_______________ or other third parties, and our ability
    to obtain required licenses on reasonable terms and conditions;
  • Changes in our overall tax position as a result of changes in tax rules, new or revised legislation, the outcome of tax audits or changes in international tax treaties which may impact our results of operations as well as our ability to accurately estimate tax credits, benefits, deductions and provisions and to realize deferred tax assets;
  • The outcome of ongoing litigation as well as the impact of any new litigation to which we may become a defendant;
  • Product liability or warranty claims, claims based on epidemic or delivery failure, or other claims relating to our products, or recalls by our customers for products containing our parts;
  • Natural events such as severe weather, earthquakes, tsunamis, volcano eruptions or other acts of
    nature, health risks and epidemics in locations where we, our customers or our suppliers operate;
  • Availability and costs of raw materials, utilities, third-party manufacturing services and technology, or other supplies required by our operations;
  • Industry changes resulting from vertical and horizontal consolidation among our suppliers, competitors, and customers;
  • The ability to successfully ramp up new programs that could be impacted by factors beyond our control, including the availability of critical third party components and performance of subcontractors in line with our expectations; and
  • Theft, loss, or misuse of personal data about our employees, customers, or other third parties, and breaches of global privacy legislation, including the EU’s General Data Protection Regulation (“GDPR”).

Such forward-looking statements are subject to various risks and uncertainties, which may cause actual results and performance of our business to differ materially and adversely from the forward-looking statements. Certain forward-looking statements can be identified by the use of forward looking terminology, such as “believes,” “expects,” “may,” “are expected to,” “should,” “would be,” “seeks” or “anticipates” or similar expressions or the negative thereof or other variations thereof or comparable terminology, or by discussions of strategy, plans or intentions.

Some of these risk factors___ are set forth and are discussed in more detail in “Item 3. Key Information ²~ Risk

Factors” included in our Annual Report on Form 20-F for the year ended December 31, 2017, as filed with the SEC on March 1, 2018. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this release as anticipated, believed, or expected. We do not intend, and do not assume any obligation, to update any industry information or forward-looking statements set forth in this release to reflect subsequent events or circumstances.

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